Emerging markets are defined as the financial markets of developing economies. Approximately 45 countries are classified as emerging markets. For example, emerging markets are found in regions such as Latin America (Argentina, Brazil, Chile, Columbia, Mexico, Peru, etc.), Central and Eastern Europe (Greece, Hungary, Poland, Russia, etc.), the Mideast (Israel, Turkey, etc.), Asia (China, India, Indonesia, Thailand, Malaysia, etc.), and Africa (Egypt, South Africa, Nigeria, etc.)
Improved government and market-oriented management in such emerging countries are expected to provide economic benefits over the long term. Such benefits include long-term economic growth in a non-hyper-inflationary environment, and a strong demand for goods and services from an under-served and growing population.
However, recent experiences regarding the management of equities (e.g., common stocks) and fixed income (e.g., bonds, preferred stock or debt) instruments of emerging countries are somewhat inconsistent with the above described long term expectations and goals. This inconsistency occurs for many reasons. For example, economic and political developments do not follow a linear process. Further, “growing pains” have translated into significant economic and financial market volatility. In addition, traditional equity and fixed-income vehicles have not performed as would have been hoped.
Nevertheless, the fundamental themes for investing in emerging markets remain intact. However, investors would best be served by an investment vehicle that exploits the most desirable characteristics of both fixed income instruments and equity instruments. Such characteristics include strong capital appreciation potential of equities in a “benign” or stable environment, and defensive attributes of local and foreign currency bond instruments in a “hostile” or risky environment. A balanced product also provides access to a greater variety of markets than would be available with bond or equity vehicles alone.
In view of the foregoing, it is an object of the present invention to provide a method of investing in the equities and sovereign bonds of emerging countries. This method may further be applied to allocating investments between equities and sovereign bonds of individual countries in a fund comprised of the financial instruments of a plurality of emerging countries.